Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 1 of 12 PageID #: 7630

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1 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 1 of 12 PageID #: 7630 IN THE UNITED STATED DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Civil Action No. 4:11-cv-655 JAMES G. TEMME, and STEWARDSHIP FUND, LP, Defendants. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEYS FEES AND EXPENSES (From January 1, 2014 to June 30, 2014) Keith M. Aurzada as Receiver (the Receiver ) for James G. Temme, Stewardship Fund, LP, and all other entities directly or indirectly controlled by James G. Temme or Stewardship Fund, LP, including but not limited to, Stewardship Advisors, LLC, d/b/a Stewardship Advisors, LP, Stewardship Asset Management Genpar I, LLC, Stewardship Group, LLC, Destiny Fund, LP and Stewardship Management, LP (collectively, the Defendants ), hereby files his Fifth Interim Application to Allow and Pay Receiver s Fees and Expenses and; (2) Attorneys Fees and Expenses and, in support of such, would respectfully show unto the Court as follows: BACKGROUND 1. Prior to the initiation of the above-captioned action by the Securities and Exchange Commission ( Commission ), Defendants raised at least $35,000,000 from various investors seeking to purchase distressed residential mortgage loans and REO properties. In offering and selling the loans and properties, the Defendants represented to investors that the (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 1

2 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 2 of 12 PageID #: 7631 offerings and proceeds would be used to buy properties/mortgages at deeply discounted values, and that the properties/mortgages would be improved to be leased or resold at a profit. 2. As the Receiver has conducted his investigation, it has become apparent that the Defendants means of acquiring properties was to obtain funds from various groups or individuals to invest in limited partnerships in which the general partner would acquire, at a discount, tapes of distressed, non-performing mortgage loans. 3. In the spring of 2011, Defendants scheme collapsed, payments to investors ceased, and lienholders began foreclosure proceedings on the properties acquired and held by the Defendants. Many of the properties are in dilapidated conditions. Moreover, it is difficult to tell from the Defendants records how the properties were acquired, the consideration paid for each of the properties, and the complete transactional history with respect to each property. Moreover, many of the properties were, and remain, delinquent on ad valorem taxes and have been lost to foreclosure. 4. At the time the Receiver was appointed, the Defendants bank accounts contained nearly nothing. As of June 30, 2014, the balance of the Receiver s liquid accounts totaled $1,571, APPLICATION FOR FEES AND EXPENSES OF THE RECEIVER AND HIS ATTORNEYS 5. This Application seeks the approval and payment of fees and reimbursable expenses for the Receiver and Bryan Cave LLP ( BC ) for the time period from January 1, 2014 through June 30, 2014 (the Relevant Period ). 1 Attached hereto as Exhibit B is an accounting report for the applicable period. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 2

3 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 3 of 12 PageID #: During the period covered by this Application, the Receiver has incurred fees and expenses with respect to his activities and those of BC as to these proceedings on a monthly basis as follows: Month Fees Expenses January 2014 $27, $ February 2014 $46, $ March 2014 $26, $1, April 2014 $21, $ May 2014 $34, $85.91 June 2014 $12, $ TOTAL: $169, $2, Exhibit A, which is attached and incorporated for all purposes, conveys the following information for the time period January 1, 2014 through June 30, 2014: (a) the number of hours worked by each attorney and staff member on a particular day; (b) the manner and type of work performed by each attorney and staff member; (c) the customary billing rate for each person rendering service in this matter; (d) the monetary value assigned to each task performed by a given attorney and/or staff member; and (e) each expense item incurred. Each of the invoices attached as Exhibit A reflect aggregate expenses by category during a given month. A summary of the time billed by each task code is also included at the end of the invoices. DESCRIPTION OF RECEIVERSHIP ASSETS 7. As of June 30, 2014, the balance of the Receiver s liquid accounts totaled $1,571,038. This does not reflect other, non-liquid assets of the Receivership Estate, such as (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 3

4 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 4 of 12 PageID #: 7633 interests in notes, properties, or potential causes of action. This amount also does not include assets of the Receivership Estate acquired or liquidated by the Receiver after June 30, For example, in September 2014, the Receiver acquired $550,000 from a settlement with the HSP Entities and entered into two settlements with escrow companies that will result in payments to the Estate of $175,000 (described below). This amount also does not include a $250,000 recovery from Halo that is the subject of a potential appeal (described below). 8. A substantial portion of the fees and costs incurred by the Receiver during the Relevant Period were necessary for the administration of the Estate or otherwise beyond his control, including preparation for trial, review of all proofs of claim filed by investors, and formulating an initial plan of distribution. 9. At this time, the Receiver seeks approval of all fees and expenses requested herein on an interim basis with final approval to be determined at the close of the Receivership. The Receiver only seeks reimbursement of 80% of his fees and 100% of his expenses at this time. JOHNSON FACTORS 10. In support of this request for compensation and reimbursement of expenses, the Receiver respectfully directs this Court s attention to those factors generally considered by courts in awarding compensation to professionals for services performed in connection with the administration of a receivership estate. As stated by the Fifth Circuit Court of Appeals in Migis v. Pearle Vision. Inc., 135 F.3d 1041, 1047 (5th Cir. 1998), The calculation of attorneys fees involves a well-established process. First, the court calculates a lodestar fee by multiplying the reasonable number of hours expended on the case by the reasonable hourly rates for the participating lawyers. The court then considers whether the lodestar figure should be adjusted upward or downward depending on the circumstances of the case. In making a lodestar (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 4

5 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 5 of 12 PageID #: 7634 adjustment the court should look at twelve factors, known as the Johnson factors, after Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974). Those factors, as applied to the services rendered in this case by the Receiver and BC, are addressed below. (a) The Time and Labor Required. The Receiver and BC respectfully refer to Exhibit A, which details the involvement of the Receiver and BC s attorneys in this case during the period covered by this Application showing that a total of hours of attorney, Receiver, and paraprofessional time have been expended. The Receiver has endeavored to keep costs and fees down by, when possible, using secretarial assistance by employees who do not bill for their time, and by using paralegal staff who bill at lower rates than the Receiver and his counsel. The Receiver s efforts for the relevant period can be categorized and summarized as follows: (i) Trial Preparation 11. Pursuant to the Court s scheduling order, trial against all Defendants was set for March 31, See, e.g. Dkt. No The Receiver was expected to be the primary witness during trial and estimated that he would be examined by the Commission for an entire day and cross-examined by counsel for the Defendants for multiple days. As a result of the anticipated extensive testimony, the Receiver and his counsel began preparing for trial in January The Receiver and his counsel began compiling documents, reviewing financial information, and further investigating a number of topics on which the Receiver was expected to testify, including the operations of the Defendants from 2008 to the time this matter was filed, tracing of funds from investors, the Defendants representations to investors regarding asset purchases as compared to the actual use of investor funds, and the administration of the Receivership. The Receiver and his counsel also spent substantial time investigating and preparing to respond to (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 5

6 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 6 of 12 PageID #: 7635 allegations made in the Defendants response to the motion for summary judgment previously filed in this matter and the evidence supplied in support of the same [Dkt. Nos. 218, 240, 241]. 12. The efforts of the Receiver and his counsel to prepare for trial continued until February 25, 2014, when the Commission and the Defendants filed a joint Motion to Continue, which was granted by the Court [Dkt. Nos. 330, 332]. (ii) The Halo Settlement 13. On August 28, 2013, the Receiver filed a Motion to Approve Settlement Agreement with Halo Companies Inc. ( Halo ) [Dkt. No. 244], in which he sought to resolve potential claims against Halo in exchange for a payment of $250,000. Two groups of investors objected to the proposed settlement with Halo, the Association and the Berg Group. 2 Magistrate Judge Amos L. Mazzant entered a Report and Recommendation approving the settlement agreement with Halo [Dkt. No 290] over the objections of the investor groups. The Association did not further object to the settlement with Halo. 14. The Berg Group, however, continued to object to the Halo Settlement and filed an objection to the Report and Recommendation [Dkt. No. 301], to which the Receiver responded [Dkt. No. 314]. On March 28, 2014, District Judge Ron Clark adopted the Report and Recommendation and entered an order approving the settlement with Halo [Dkt. No. 336, 337]. Apparently undeterred, the Berg Group filed a Motion to Reconsider [Dkt. No. 340], which was also denied by District Judge Ron Clark [Dkt. No. 352]. 15. The Receiver and his counsel spent substantial time investigating the allegations of the Berg Group, and compiling evidence and drafting pleadings in support of its decision to 2 The Berg Group includes Bruce Berg, Stuart Cartner, Kevin Doyle, Walter Haydock, Edward Leh, Kevin Murphy, Philip Schantz, DAIS Partners, LP, Singer Bros., LLC, Skeleton Lake, LLC, and Wildcat Lake Partners. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 6

7 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 7 of 12 PageID #: 7636 enter into the settlement agreement with Halo. As a result, the Receiver has preserved the ability to recovery $250,000 from Halo. It is unclear whether the Berg Group intends to seek an appeal of the orders approving the Halo settlement. However, the Receiver will continue to defend the settlement agreement in an effort to recover funds for the Estate. (iii) Potential Litigation against Escrow Companies 16. The Receiver, with the assistance of outside counsel Andrew Whitaker, spent substantial time during the Relevant Period investigating potential lawsuits against two escrow companies that conducted business with the Defendants, American Equity Funding, LP ( AEF ) and Madison Settlement Services, LLC ( Madison ). Both AEF and Madison conducted considerable business with the Defendants, including performing escrow services, serving as a broker on sales and acquisitions of assets, and distributing funds to the Defendants and investors. AEF and Madison knew or should have known that the Defendants conduct was fraudulent and reaped ample profits from their business with the Defendants. 17. The Receiver has reached settlement terms with both AEF and Madison. The settlement agreement with AEF will require a $50,000 payment from AEF to the Estate at the time the Court approves the settlement agreement, as well as an additional $50,000 to be paid within one year of the initial payment. The settlement agreement with Madison requires Madison to make a payment of $35,000 to the Estate at the time the Court approves the settlement agreement, as well as four additional payments of $10,000 to be made on March 31, June 30, September 30, and December 31, The Receiver, AEF, and Madison are in the process of finalizing formal settlement documents and expect to file motions to approve the settlement agreements shortly. In total, the settlements with AEF and Madison will result in payments to the Estate of $175,00 (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 7

8 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 8 of 12 PageID #: 7637 (iv) Evaluation of Proofs of Claim 19. In addition to efforts to secure and liquidate assets of the Estate, the Receiver and his counsel spent substantial time during the Relevant Period evaluating the proofs of claim filed by investors in the Defendants. In total 169 proofs of claim have been filed by individuals and entities that invested in the Defendants. The Receiver and his counsel have reviewed each claim to evaluate whether it has been properly documented and determine the extent to which it should be allowed and evaluate potential objections thereto. The Receiver is in the process of notifying investors whether their claims are properly documented, whether more documentation is needed, and the extent to which his initial review indicates that the claim is objectionable. 20. The Receiver and his counsel have also spent substantial time evaluating and drafting an initial plan of distribution. The plan of distribution will provide investors with notice of the treatment of classes of investors and provide an opportunity for them to object to their potential treatment. (v) Oil and Gas Leases 21. The Receiver has also engaged in substantial efforts to sell oil and gas leases that it obtained in a previous settlement. The Receiver obtained Court authorization to retain Symplex Energy Solutions to market the oil and gas leases [Dkt. No. 284]. The Receiver worked with Symplex to market the leases by publication in several newspapers, mailing a notice of sale to all investors in the Defendants, and holding a public auction of the oil and gas leases. Despite these efforts, the Receiver and Symplex did not located a buyer for the leases. As a result, the Receiver marketed and held a public auction of the oil and gas leases on the steps of the courthouse. No bids were received and the Receiver continues to seek buyers for the oil and gas leases. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 8

9 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 9 of 12 PageID #: 7638 (ix) Administration of the Estate 22. The Receiver and his staff also spent substantial time each week administering the Estate. On a daily basis, the Receiver receives mail addressed to the Defendants regarding assets that the Defendants own, service, previously owned, or previously serviced. This includes municipal ordinance violation notices, tax notices, foreclosures notices, utility bills, lawsuits related to the property, requests for information, and other similar notices and mail. The Receiver s staff must open, identify, catalogue, and (when appropriate) respond to such mail. 23. The Receiver and his staff also respond to daily phone calls and s from parties affected by the Defendants and Receivership. Such inquiries often involve inaccurate or incomplete title documents, misappropriated escrow payments, overdue ad valorem taxes or threats of foreclosure, transfers of servicing rights, and the sale of mortgages and promissory notes to other entities. These inquiries often require considerable time to resolve because, as previously noted, the Defendants business records are incomplete or non-existent. (b) The Novelty and Difficulty of the Questions. Many of the tasks reflected in Exhibit A involved factual and legal questions that were of substantial complexity. Moreover, the Defendants complete lack of systematic record keeping and failure to complete basic paperwork has substantially hindered the Receiver s efforts. (c) The Skill Requisite to Perform the Service. The Receiver believes that the services performed in this case have required individuals possessing considerable experience in asset seizure, tracing and liquidation. The Receiver and BC have considerable experience in such areas and have consulted additional resources where necessary. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 9

10 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 10 of 12 PageID #: 7639 (d) The Preclusion of Other Employment Due to Acceptance of the Case. The Receiver and BC have not declined any representation solely because of their services as Receiver and counsel for the Receiver. (e) The Customary Fee. The hourly rates sought herein are commensurate with, or lower than, the rates charged by other practitioners of similar experience levels in the Eastern District of Texas and actually reflect a discount from the standard rates charged by the Receiver and his counsel. During the course of these proceedings, both lawyers and paralegals have performed services on behalf of the Receiver with respect to these proceedings. The timekeepers who have performed services for the Receiver, and their status at BC, are indicated in Exhibit A and in the chart below. BC Attorney Profiles of lawyers who have performed services for the Receiver are available at Finally, part of the Receiver s work in this case has been to catalogue thousands of entries concerning the investors, payments, and receipts. Where possible, non-billable BC staff has been used to complete those duties. (f) Whether the Fee is Fixed or Contingent. The Receiver s and BC s fees are fixed insofar as monies exist by way of Receivership Assets from which to pay such fees. Payment of such fees, however, is subject to Court approval. (g) Time Limitations Imposed by the Client or Other Circumstances. The time requirements during the period covered by this Application have been substantial. (h) The Experience, Reputation and Ability of the Attorneys. BC has several attorneys who specialize exclusively in the practice of civil trial law. The practice of those attorneys regularly includes the representation of bankruptcy trustees and receivers. The reputation of BC s attorneys is recognized and respected in their community in Texas. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 10

11 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 11 of 12 PageID #: 7640 (i) The Undesirability of the Case. The representation of the Receiver incident to this case has not been undesirable. (j) The Nature and Length of the Professional Relationship with the Client. BC did not represent the Receiver in these proceedings prior to being retained in these proceedings. (k) Award in Similar Cases. BC believes that the fees requested in this case are less than or equal to those which have been awarded in similar cases in this District. WHEREFORE, the Receiver respectfully requests that the Court allow the requested compensation for professional services and expenses rendered by the Receiver and his legal counsel, and authorize the Receiver to pay BC $138,704.49, representing $135, (80% of $169,654.00) in interim fees and $2, (100% of $2,972.29) in interim expenses for the time period from January 1, 2014 through June 30, Dated: October 10, 2014 Respectfully submitted: //s// Keith Miles Aurzada Keith Miles Aurzada, Receiver 2200 Ross Avenue, Suite 3300 Dallas, Texas Telephone: Facsimile: (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 11

12 Case 4:11-cv ALM Document 354 Filed 10/13/14 Page 12 of 12 PageID #: 7641 CERTIFICATE OF CONFERENCE I hereby certify that, in accordance with the Billing Instructions for Receivers in Civil Actions Commenced by the U.S. Securities and Exchange Commission, I delivered the invoices attached to the foregoing and the Standardized Fund Accounting Report as Exhibits A and B respectively to David B. Reece, counsel for the Commission. Additionally, my counsel has discussed the relief requested with David B. Reece, and has been advised that the Commission does not object to the relief requested. Therefore this matter is present to the Court for determination. //s// Keith Miles Aurzada Keith Miles Aurzada, Receiver CERTIFICATE OF SERVICE I certify that on October 10, 2014, I served a true and correct copy of the foregoing pleading by electronic mail through the Court s CM/ECF system to all parties consenting to service through same, including to counsel for the SEC, the Defendants, and all others consenting to service through same. Moreover, the foregoing will be uploaded to //s// Keith Miles Aurzada Keith Miles Aurzada (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 12